Top slice mortgages may help Oxford investors

Which? – the consumer organisation - says a handful of buy to let mortgage lenders have found a way of helping so-called ‘portfolio landlords’ to borrow more than they might have expected under tough new regulations.

Last month the Prudential Regulation Authority tightened the criteria which individual lenders had to use when handling applications from portfolio landlords - that is, those with four or more buy to let properties. 

But now the Which? Reports that “a handful” of lenders offering ‘top slicing’ deals, which allow landlords with low rental yields to make up their shortfall through other income. 

“Top slicing takes a landlord’s personal income, such as their salary or pension income, into consideration when assessing their affordability, rather than just looking at the profitability of their property portfolio. Top slicing is good news for landlords buying higher value properties which might have lower rental yields, as it allows them to use external personal income to bridge any shortfall” says a statement from Which? 

With Oxford prices rising again over the last 12 months by around 6%, and average Oxford homes costing £414,817, Oxford offers lower rental yields over the initial 3 to 5 years following purchase.  As a result, ‘Top slicing’ products would appear highly relevant for landlords aiming to increase their investment in Oxford property.

The consumer group says currently the lenders who undertake this are Aldermore, Barclays, Bluestone, Clydesdale Bank, Coventry, Mansfield, Metro Bank, NatWest, Vida and Virgin Money.

However, because of the restrictions imposed on most lenders by the new PRA criteria, some 14 companies have pulled out of the portfolio landlord market completely, says Which? This includes Santander, the TSB and the Post Office.

Kidlington – Reasons to be cheerful whether you are buying or selling

With its easy access to London and the Midlands via Oxford Parkway train station, and public transport links to Central Oxford, Kidlington is now one of the top 5 areas in the UK where houses are bought by City leavers.  According to a recent study, 50% of all property transactions completed are now to people moving out of a City, with London being a popular source location.



Over the last 12 months close to 95,000 people have decided to move out of London, up 16% on 2016, with 30% of leavers being between 20 and 29 years of age.



Many of these movers are cashing-in on the value of their City properties, and moving to more rural and cheaper locations.  With many using the move to change their work life balance, while others being motivated by ease of commuting links to where they have moved from.



Key attractions are a sense of community, period properties and access to good schools.  Many movers are shunning the traditional commuter towns where everyone is there for commuter convenience for authentic towns where people choose to live for a variety of reasons.



The slowing market in London presents a challenge for Kidlington and other popular places with City leavers.  There are currently 20% more homes for sale in London that at this time last year.  This is an example of how the Oxford market is affected by the Capital, and has contributed to the fall in transaction volumes across Oxford.

Many City leavers choose to rent initially in their chosen location, to enable them to make the move more quickly, confirm their preference and look for suitable properties to buy. 



So, how is the local Kidlington market performing?  Well, transactions over the last 12 months are down by 5% on the previous year at 372 transactions in total.  Of those 13% were for flats at an average price of £210,274, and just 4% of the market was new build.  Terraced houses averaged £306,720; semi-detached £349,353; and, detached homes £481,612.  The most expensive flat sold over the last 12 months changed hands for £382,950 and the most expensive house for £1,405,000.  Overall across the last 12 months prices have held firm making Kidlington look like better value when compared against the rest of Oxford where prices are up 6% on the prior 12-month period.  On average a home in OX5 is 16% cheaper than the average for Oxford as a whole, and accounts for around 12.5% of Oxford total transactions.



Many City leavers rent initially in their chosen location, enabling them to make the move more quickly, confirm their preferences and look for suitable properties to buy. 



Recognising this source of demand is important when marketing your Kidlington property, which also remains popular with families struggling to trade-up to larger properties in Oxford itself.

Kidlington is one of 10 areas in the UK where city-leavers are buying property

With its easy access to London and the Midlands via Oxford Parkway train station, and public transport links to Central Oxford, Kidlington is now one of the top 5 areas in the UK where houses are bought by City leavers.  According to Hamptons, 50% of all property transactions completed.

Over the last 12 months close to 95,000 people have decided to move out of London over the last 12 months, up 16% on 2016, with 30% of leavers being between 20 and 29 years of age.

Many of these movers are cashing-in on the value of their City properties, and moving to more rural and cheaper locations.  With many using the move to change their work life balance, while others being motivated by ease of commuting links to where they have moved from.

Key attractions are a sense of community, period properties and access to good schools.  Many movers are shunning the traditional commuter towns where everyone is there for commuter convenience for authentic towns where people choose to live for a variety of reasons.

The slowing market in London presents a challenge for Kidlington and other popular places with City leavers.  There are currently 20% more homes for sale in London that at this time last year.  This is an example of how the Oxford market is affected by the Capital, and has contributed to the fall in transaction volumes across Oxford.

Many City leavers choose to rent initially in their chosen location, to enable them to make the move more quickly, confirm their preference and look for suitable properties to buy.  Around 5% end up reviewing their decision, moving back to the City they have left.  But, for the majority it reinforces their decision and enables them to find the right long-term home.

Recognising this source of demand is important when marketing your Kidlington property, which also remains popular with families struggling to trade-up to larger properties in Oxford itself.

Moving from a 2 bed Oxford Property to a 4 bed will cost you £1,067 pm

Moving to a bigger home is something Oxford people with growing young families aspire to. Last week I considered the general trend towards increased demand for 3 and 4 bedroom properties as ‘generation rent’ start planning families.  This week I look at the cost involved in buying a larger Oxford property.  Many people in two bedroom homes move to a three-bedroom home and some even make the jump to a four-bed home. Bigger homes, especially three-bed Oxford homes are much in demand and it can be a costly move.

If you live in Oxford in a two-bedroom property and wish to move to a four-bedroom house in Oxford, you would need to spend an additional £270,251 (or £1,067.49 pm in mortgage payments (based on the UK Bank average standard variable rate)). However, going straight to a four bed from a two-bed home is quite rare as most people jump from a two to three-bedroom home, then later in life, from a three to four-bedroom home.

So, after being asked my thoughts on moving home in Oxford by a friend recently, I did a little analysis of the local property market. To start with, let’s see what the average property price is for an Oxford home by the number of bedrooms it has.

 I then decided to calculate what it would cost to make the jump upmarket from one bedroom to two bedrooms, two to three bedrooms etc, etc, both in actual money and in mortgage payments (using the current standard variable rate of UK Banks of 4.74%).

There are some interesting jumps in costs when moving upmarket as an Oxford buyer. The cost of moving from one to two beds, and two to three beds is relatively reasonable, whilst the jump from three to four beds in Oxford is quite high and therefore financially prohibitive for most families. This helps provide a partial explanation as to why some four-bed properties are currently taking slightly longer to sell.  With Oxford already being one of the most expensive Cities for house affordability in the UK, it is not surprising that the properties at the top of the market prove unaffordable for many.

As an aside, there is a lesson here for all my blog readers. You can quite clearly see why the larger 4 and 5 bed properties don’t offer the best returns for buy to let landlords. Simply put the monthly finance costs and rents achieved don’t match up so well (i.e. a mortgage for a 4 bed home in Oxford would cost you 51.40% more when compared to a 3 bed mortgage, but the jump in rent would be a lot less than that). I don’t wish to be dismissive about the solidity of investing in larger properties because it does depend on your circumstances. Four bedroom properties sometimes offer other advantages, however, it is clear to see why the 3 bed family market is in such demand, and why I forecast that to continue over the coming 3 to 5 years.

What is the next big trend in Oxford rentals

Over the last few weeks I’ve been asked on three separate occasions by Oxford buy to let landlords what trends they should be aware of when considering their next buy to let investment in the city.

One trend that is certainly emerging in Oxford is rising demand for larger properties, by couples with young or growing families.  Typically, these couples are already renting, but out-growing their one or two-bedroom property, and targeting more space to grow into.  They are members of a growing group of young parents who have always rented their homes, and who either prefer to continue to rent, or who remain priced-out of the Oxford market.

Looking at Oxford’s housing mix, shows that 3 and 4-bedroom properties account for just over 50% of all Oxford properties, suggesting that availability shouldn’t be a problem.

However, this is a highly competitive sector of the market.  The most active purchasers of Oxford 3-bedroom properties are in their late-20s or early to mid-30s, they may already own their own home or this might be their first purchase, they are parents with growing families or couples planning to start a family soon. Many are seeking a perfect balance of access to decent primary schools, commutability, access to an open space and general liveability by which I mean access to supermarkets, pubs and restaurants. For landlords looking to buy 3 and 4-bed Oxford properties, they face stiff competition from these 20/30 something families, making the three-bedroom Oxford home massively in demand, often attracting spirited offers and selling within weeks of listing.

This mix of homebuyers and landlords is creating a pressure point in the Oxford property market, which reduces the availability of 3 and 4-bedroom properties for young families with the same nees as those described above, but who either have to rent or prefer to rent rather than buy.  The competition for the purchase of these properties is maintaining pressure on prices, which in turn applies pressure to rental yields making some buy to let landlords think twice about investing in this in-demand sector of the market.  I firmly believe that demand will outstrip supply over the coming years and that as a result rental yields will improve progressively, making early investment in this sector attractive.  I also believe that this sector will be less impacted by uncertainty resulting from domestic politics and Brexit, given that demand will be dominated by UK nationals and long-term residents.

Next week I will examine the costs associated with buying an additional bedroom in the Oxford market.  For renters, however, the challenge is one of availability. 

If you are an Oxford landlord, please do call me and I will show you areas with decent returns where you aren’t in so much competition with young Oxford family homebuyers to exploit this future growth market.

Oxford house prices matching National average growth rate

Hometrack has release its UK Home Price Index for August 2017, and on first reading it appears to include relatively positive news for Oxford home owners.  Nationally, the average rate of house price inflation is 3.8% which Oxford is matching exactly.  However, closer inspection shows that the National average is being dragged back by London which achieved just 1.9% year of year growth to August 2017.

Whilst Oxford is performing well in comparison to Cambridge (2.8%), Bristol (3.4%) and other major University cities such as Cardiff (3.2%), Sheffield (2.7%) and Liverpool (3.8%), overall Oxford home prices are rising more slowly than 10 other cities in the Hometrack 20 City Index.

Delving further it can be seen that cities like Oxford, that have enjoyed strong growth over recent years, and where average prices have risen strongly, are struggling relative to the best performing cities such as Manchester (7.3%), Birmingham (6.7%) and Edinburgh (6.6%).  Indeed, the 3 most expensive cities in the index London (£489,100), Cambridge (£434,500) and Oxford (£425,800) are each in the lower half of the table, with oxford out-performing both Cambridge and London.

So, is this good news or bad news for Oxford’s home owners?  Well it really depends on circumstance. 

With new build homes struggling to exceed 1% of the total transactions completed over the last 12 months, for first-time buyers, Hometrack’s statistics offer bad news.  Despite the total number of house purchase transactions being down over 20% compared to the previous 12-month period, there remains inflationary pressures, which is widening the affordability gap for first-time buyers.

For Oxford home-owners, the news is more positive.  Despite transaction volumes falling substantially, their homes continue to rise in value ahead of the general rate of inflation.  However, with the market as a whole being generally slower, those planning their next move may need to be patient to find a buyer and to find their ideal next property.

Careful research into Land Registry data for Oxford also shows that the price increments between Flats, terraced, semi-detached and detached homes are high.  Over the last 12 months’ flats have averaged £280,276, terraced houses are on average 36.7% higher (£383,104); semi-detached are just 7% higher than terraced (£410,615) but detached houses are a staggering 46.4% higher than semi-detached (£600,934).  This means that for many who own an Oxford property, it is difficult to ‘trade-up’ to larger properties.  And, the lack of new build means that for many they must either rent to live in Oxford, or live in more affordable places like Bicester, Didcot and Abingdon and commute into Oxford for work.